Unpacking Made in China

Key points

• China’s status as the world’s factory and top exporter has come under intense pressure from the Sino-US trade war and a global pandemic that has disrupted supply chains
• But instead of weakening its position, these adversities have been turned into advantages, with China actually gaining market share by broadening its export scope and strengthening its supply chain network
• The growing resilience of the “world’s factory” follows a transformation of China’s domestic production system from cost-based competition to skills-and-technology-based
• The rapid emergence of China as a manufacturing and export powerhouse has reshaped the landscape of global trade. Developed countries, led by Japan – and to a lesser extent the US – have lost market share to China in medium-and high-skilled segments
• Yet, rising production costs have eroded China’s competitiveness in some labour-intensive industries in recent years, where Vietnam has made the most gains
• However, constrained by its small size and reliance on China’s provision of critical inputs, Vietnam is unlikely to fully replace China as the world’s factory, but could continue to thrive as a partner in China’s supply chain ecosystem